Sunday, 29 November 2015

During the course of 2015 and 2016 a major change is
taking place concerning the accounting standards that govern the way a set of
accounts is put together. This could change both the figures and the
explanations in your accounts, including making retrospective changes to the
prior year figures that are shown. There can also be taxation impacts in some
situations.

The purpose of this letter is to set out a brief overview
of the possible areas of change. It is written on the basis that you are
currently using Financial Reporting Standards (FRS) and Statements of Standard
Accounting Practice (SSAPs) or the Financial Reporting Standard for Smaller
Entities (FRSSE) issued by the old Accounting Standards Board and you will be
moving to FRS 102. Small companies are generally affected in the same way as
larger companies, although there are a few differences which are highlighted
below.

Without a full analysis of your accounts and a discussion
with you regarding your choices of accounting policies and what are termed
transitional exemptions, it is not possible (at this stage) to identify the
precise areas of change. We would be happy however, to discuss completing this
exercise with you and to carry out additional work that you may require with
regard to accounting or tax as a result of these changes.

Summary of key changes

Financial statements

These might look a little different to your current
accounts. There are some new choices for terminology, moving to more
internationally used phrases such as property, plant and equipment instead of
tangible fixed assets and inventories instead of stock. The primary statements
required are now:

·Statement of Financial Position (previously the Balance
Sheet);

·Statement of Comprehensive Income; or

oIncome
statement (previously the Profit and Loss) and a separate

oStatement
of Comprehensive Income (previously the Statement of Total Recognised Gains and
Losses)

·A Statement of Changes in Equity (not required
for a small entity)

·A Statement of Cash Flows (not required for a
small entity)

·Notes

Cash flow statement

Small companies are not
required to have a cash flow statement, but for others, the format of this has
changed quite significantly. There are now just three main headings, operating,
financing and investing activities.

For subsidiaries there is
no automatic cash flow exemption, but there is a reduced disclosure regime
which would permit the Statement of Cash Flows, together with other
disclosures, to be omitted if certain conditions are met.

Financial instruments

These include a wide range of assets and liabilities
which are financial, rather than tangible or intangible in nature. For example,
cash, debtors and creditors are all financial instruments. The main changes in
respect of these items are that:

·Investments in shares that are not group
companies must be measured at fair value if possible, with any unrealised or
realised gains or losses reflected in the profit or loss.

·Derivatives, which includes items such as a
forward currency contract, an interest rate swap, futures or options all need
to be recognised in the balance sheet at their fair value with gains or losses
in the profit or loss. In the past these were ignored until the contract was
completed. The new treatment means that you will need to check if you have any
such contracts and obtain a valuation for them, together with the valuation
method used.

·Loans that are not at a market rate need to be
put into the accounts as if they are at market rate. This requires the
calculation of notional interest at a market rate. (Public benefit entities,
such as charities, do not need to do this though).

Foreign currency translation

The rules have changed so that where you have foreign
currency transactions you will always need to translate the amounts at the rate
ruling on the date of the transaction (the spot rate). In the past, you were
able to use the rate of any related forward contract, or a contracted rate if
one was agreed.

There is a requirement in FRS 102 to establish the
functional currency of the entity. Normally this will be pounds sterling for a
UK company, but if most of its cash flows are in another currency, or impacted
by another currency then this may not be the case. We can discuss the impact of
this if you think it might apply.

Hedge accounting

Because the impact of the changes described for foreign
currency and financial instruments can be to increase the volatility in the
profit and loss and not to match related transactions, there is the ability to
use hedge accounting. This is a complex process but ensures close matching of
related contracts, such as a foreign currency purchase and forward foreign
exchange contract. If you think you may wish to use hedge accounting please
discuss this with us.

Business combinations, associates and joint ventures

Acquisitions, or so called business combinations, are
usually dealt with in the consolidated accounts if these are required (small
groups are not required to prepare consolidated accounts). Under the new rules
you are more likely to have to recognise intangible assets, such as customer
lists, that you have purchased as part of the acquisition. Previously, these
would often have just been part of the goodwill figure.

There are also some minor changes regarding associates,
joint ventures and the accounting treatment of acquisitions or disposals
achieved in stages.

Related party transactions

There have been some changes to the definitions and to
the disclosure requirements, although these are fairly minor, unless you are a
small company. Small companies will only need to disclose limited related party
transactions and in particular only those which are not at a market rate.

Goodwill

If you cannot reliably estimate the life of goodwill,
there are new rules that require the maximum life to be 10 years (or in some
cases in 2015 only, 5 years). This may mean that some adjustments are needed to
the amortisation period and/or value of goodwill in your accounts.

Investment property

If you hold investment property you will have to show it
at fair value in the balance sheet, as now, but changes in value will go
through the profit and loss for the year.

Property, plant and equipment

There are only minor changes to the rules here, although
a transitional option exists which allows you to use a valuation of an asset as
its deemed cost. This means you could, for example, value a property just once
and then treat that value as if it were cost. This avoids having to continue
valuing on a regular basis, which is required if you want to adopt the revaluation
model. Instead, this transitional option allows a one-off uplift of the value
of an asset.

Lease incentives

If you are a lessee or lessor of an asset under an
operating lease then any lease incentives, such as rent free periods, will now need
to be spread over the whole lease term. Currently they are just spread over the
period to the first rent review. The lease term is now defined as the period over
which there is reasonable certainty that the lease will continue, even if there
is a break clause before that. This can have taxation implications, so you may
wish to discuss this with us, as there are various options on transition.

Deferred tax

The rules for this have now been tightened up, meaning
that deferred tax is required on some items that were previously exempt. This
means that deferred tax will need to be recognised on all revaluations and also
sometimes on unremitted earnings from a subsidiary. This will generally mean
that your deferred tax figure will be higher than before.

Employee benefits

The new rules mean that it will be necessary to consider
whether you need an accrual for holiday pay, where holiday is due at the
year-end but has not been taken. If this amount is material it will need to be
calculated each year and put into your accounts. It is usually only material if
the holiday year and the accounting year are different, or if you allow staff
to carry over significant amounts of holiday into the next year.

There have been some changes to the accounting for
defined benefit pension schemes, but as these are rare please ask for further
information if this affects you.

Share-based payments (FRSSE companies)

FRSSE companies have been exempt from the requirement to
account for equity settled share-based payments. However, under FRS 102 they
will now need to be accounted for. For other companies, the requirements for
these are essentially the same as under thecurrent rules.

Transitional changes

The general rule when dealing with the move to FRS 102 is
that all the changes are applied retrospectively, through the calculation of
what is termed a prior year adjustment. However, as this would sometimes be
very onerous there are a number of transitional exemptions, enabling the new
rules to be applied only in the future. These do not cover all the changes
though, so in the first year there will probably be adjustments made to
reserves and disclosures will be needed to explain the impact on the balance
sheet and profit and loss. (Small companies are not required to give these
disclosures although they are likely to be helpful to anyone using the
accounts).

Practical impacts of the changes

There are some areas of
your business that could be impacted adversely by the changes in the accounting
rules if you do not consider the issues. Broadly speaking they include any
contract, covenant or other agreement which is based on or refers to your
accounts or specific figures in them. In particular, because the profit can be
more volatile and include items such as gains on investment properties that are
not yet realised, you should consider the following:

·Is there likely
to be an impact in meeting any bank covenant requirements?

·Do I need to
change any bonus or profit related pay agreements to exclude gains on items not
yet realised?

·Are there any
earn-out agreements, on for example a business acquisition, which are based on
profit in the accounts, but have not taken account of the changes due to FRS
102?

·Do I need to
make any tax elections in connection with financial instruments, so that tax is
only charged when the final transaction takes place?

·Do I need to
consider the impact of tax on my tax flow forecasts?

We appreciate that these
changes are wide-ranging and complex and we will, of course, be happy to advise
and provide additional services to ensure that the transition to FRS 102 is
dealt with as smoothly as possible. Please do call if you wish to discuss these
matters further or to arrange for a quote to be provided for any additional
services that you might require in connection with the transition to FRS 102.

l. Dividend tax credit will be abolished from April 2016 and there will be a new dividend
tax allowance of £5,000 a year. Above that level the tax rates on dividends will rise by
7.5%.

2. For private landlords the wear and tear allowance will be replaced by a new relief
allowing the actual costs of replacing furnishings from April 2016; and individual
landlords’ tax relief for finance costs will be restricted to basic rate tax – to be phased
in over four years from April 2017.

3. The national insurance contribution (NIC) employment allowance of £2,000 will rise to
£3,000 from April 2016.

4. Non-UK domiciled individuals who have been UK resident for at least 15 of the last
20 years will be treated as UK domiciled for tax, including inheritance tax (IHT), from
April 2017.

5. There will be an extra transferable IHT nil-rate band for main residences passed on
death to direct descendants, starting at £100,000 in 2017/18 and rising to £175,000 in
2020/21.

6. The corporation tax rate will be reduced from 20% to 19% in the financial year 2017,
and 18% in 2020.

7. The annual investment allowance available to businesses will be reduced to £200,000
from 1 January 2016.

The cashbook and the accounting packages now benefit from bank statement feed so no need to enter all those bank statements just tag the transactions to the income and expense categories

Vastly simplified final accounts for SMEs mean this is a very cost effective platform.

Top Benefits Of Sage One Accounting Software

Accountant Access

Your accountant will be able to access your Sage One data at the same time as you. This has been great for us, as we are able to help out clients immediately, without having to send backups back and forth. Another advantage for clients new to bookkeeping, is that we can login, check and file their quarterly VAT reports for them.

Easy To Use

Sage considers the application so easy to use that there are no training courses for it. We tend to spend an hour or two with clients who are completely new to bookkeeping going through the functionality, and then they are good to go.

Payment Integration

Sage Pay is very popular and easy to integrate with your invoicing, and enables you to receive payments online and register them in your bank account in your accounting system.

There are lots of other benefits of Sage One accounting software, such as online VAT filing and good reporting.

Sage Support

One of the main reasons that we have recommended Sage since 1990 is their superb helpdesk. The Sage One helpdesk is no exception, the technicians are knowledge and are quick to diagnose problems and offer solutions.

Why Choose Cloud Accounting?

Your data is secure and backed up and you can access it from any computer. Whether you choose Sage One or another cloud accounting software solution. No more backup headaches or having to upgrade your desktop application software.

Sage One is also very low cost, we generally recommend clients use the Sage One Accounts package, which is only £10 per month.

Next Steps

Do look at differant packages eg Freeagent and Quicken. If possible test them with a few transactions, to see if you find them easy to use and quick. Once you have chosen your favourite you are ready to start using them. Like all accounts and bookkeeping, the data will be on as good as what you put in.

Saturday, 12 July 2014

Determine what role spreadsheets play in your business, and plan your spreadsheet standards and processes accordingly. Spreadsheets are documents like any other.

Adopt a standard recognisable form for your organisation and stick to it. Use the logo and think document quality. Add a date, prepared by, reviewed by box. The date will save sending spreadsheets with differant names eg SpreadsheetJanuary and SpreadsheetJuly. Users can see whether its the latest.

Ensure that everyone involved in the creation or use of spreadsheets has an appropriate level of know¬ledge and competence. Take the time to present it and after a month re-present the spreadsheet to check understanding.

Work collaboratively, share ownership, peer review. The use of google drive makes this very easy and assists with document management as your changes are automatically saved so the document is upto date and co-worker contributions are not lost..

Before starting, satisfy yourself that a spreadsheet is the appropriate tool for the job. Will a word document do the job?

Identify the audience. If a spreadsheet is intended to be understood and used by others, the design should facilitate this. Not everyone is mathematical. A few images work wonders. Include an audience list of co-workers in the welcome sheet.

Include an ‘About’ or ‘Welcome’ sheet to document the spreadsheet.

Design for longevity. Have a few spreadsheets and stick to them.

Focus on the required outputs.

Separate and clearly identify inputs, workings and outputs.

Be consistent in structure.

Be consistent in the use of formulae.

Keep formulae short and simple.

Never embed in a formula anything that might change or need to be changed.

Perform a calculation once and then refer back to that calculation.

Avoid using advanced features where simpler features could achieve the same result.

Have a system of backup and version control, which should be applied consistently within an organisation.

Rigorously test the workbook.

Build in checks, controls and alerts from the outset and during the course of spreadsheet design.

Protect parts of the workbook that are not supposed to be changed by users.

Tuesday, 25 March 2014

As revealed last week in the Budget, from 1 July 2014 ISAs
will have a new annual limit of £15,000 as opposed to £5,760 which is the
current limit to cash ISAs and £11,520 for stocks and shares ISAs. The NISAs
(New Individual Savings Accounts) will allow for greater saving without the
need to pay tax and also reduce confusion between the different limits.

Money can be transferred from previous ISAs into the NISA to
enable individuals to benefit from the increased limit.

Junior ISAs and Child Trust Funds will be increased to allow
individuals to invest £4,000 a year, up from £3,720.

Tuesday, 18 March 2014

Council Tax Reductions have taken over from the Council Tax
benefit which were abolished in April 2013. These reductions are now run by each
local council so qualifying conditions and exemptions will be different in each
area and may not be the same as the previous benefit.

To be eligible you must either be on a low income or
claiming benefits. You can either own the property or rent it.

The support you may receive will depend on factors such as:

·Where you live

·Your circumstances (e.g. income and number of
children)

·Your total household income

·If your children live with you

·If other adults live with you

A Discretionary Discount Scheme could be run by your local
council to help with individuals in severe financial hardship but there is
typically very limited funding in this area.

Individuals living alone will automatically receive a 25%
discount in council tax as the rates are calculated under the assumption that 2
adults live in the property. Various types of individuals don’t qualify as
adults, please follow the link to find out who may be able to receive this
deduction.

Properties which are lived in solely by students are exempt
from council tax.

Empty or unfurnished homes and properties that aren’t your
main residence may also qualify for a discount.

Reduction in
Council Tax for Disabled Persons

Reductions are available to individuals who are disabled or
live with a person with a disability who require extra room in the property to
meet their needs arising from a disability. This could also mean an extra
bathroom or kitchen, or just extra space.

These discounts are designed to ensure that disabled people don’t
pay more tax on account of space needed because of a disability.

Typically the discount will involve moving to the next
cheapest council tax band. I.E. an individual living in a Band C property with
a disability will have to pay at the Band B rate instead.

People who are severely mentally impaired and some live-in
carers are exempt when working out council tax.

Visit your local Council’s website for more information and
details on how to apply.

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Welcome

Welcome to my firm. After my degree I joined KPMG London and then worked in the city in Corporate Finance. The family firm of chartered accountants has been established in Hinckley England for 50 years. I and my team look after 150 local businesses and also our London clients. Training has always been important to the firm. We have students on gap year from Sheffield Hallam university and on placement from local schools.

We work hard to support our clients to meet their business and financial objectives whether its routine company secretarial and registrar work, accounts and tax compliance, a new contract in China or the USA, a takeover, tax investigation, property development or special work.